How Many Pro's You Have?

Driving in to school today, as I do most mornings, I was listening to Mike and Mike in the Morning on ESPN radio. Today they were talking about March Madness and how you pick which teams are going to win, especially in the early round games. And Jimmy Dykes, one of the ESPN game analysts said that to figure out which team has the best chance of winning, you have to answer the question, “How many pro’s you have?” What Dykes meant was when you look at both rosters, you look at which team has the most players who are going to go on to the NBA and play, and especially in tournament crunch time, that’s the team you want to pick.

As I think back to being a part of an angel group in Florida, that’s exactly how I, and the rest of the group decided which companies we wanted to invest in…and it was based on which team had the real “pros.” Our group was getting on an average, around 25 to 30 business plans a month to read. We would narrow this down to just two presentations a month, and since we shut down for the summer, we were looking at around 20 opportunities a year out of the more than 350 business plans that were sent our way. Many people have said this, and when our own money was on the line, most of us deferred back to the notion of “I’d rather in invest in an A team with a B idea, than an A idea with just a B Team.” So even in entrepreneurship, we were using the notion of “How many pro’s you have” to decide which deals to invest in. As you are building your start-up team, remember that and find the best players you can to fill each slot. Friends are good, family is OK, but the best of the best is the best way to get your shot at angel and other institutional funding.

Now, back to the NCAA tourney and Go ‘Cuse!

Angel Financing and the Entrepreneur

For years, as a partner at one of the major law firms in Orlando, Bill Grimm touched virtually every high tech start-up and growth deal that took place in Central Florida. Bill is now an entrepreneurship professor at Rollins College and a blogger on things related to startups. Take a look at his blog, Thoughts on Advanced Entrepreneurship, for several recent posts related to raising capital from angel investors. Related to his post, one of the best books I've seen on angel financing is by Susan Preston, Angel Financing for Entrepreneurs.

From his blog:

When an entrepreneur comes to me for advice on raising capital from angel investors, I ask him or her "Do you know why angels make investments in early stage companies?" Inevitably, the answer reflects superficial thinking and deserves an "F." Most entrepreneurs do not have the foggiest idea about what it takes to raise capital from angel investors and make little effort to find out. They seem to think that if they have a good business plan and enthusiasm, angel investors will invest.Any entrepreneur who decides to raise capital from angel investors should conduct as much research on why angels invest as they do on why customers buy their products or services. Few entrepreneurs even read a book on how to raise capital from angels when there are many books on the subject through Amazon. It's no wonder that most entrepreneurs who set out to raise capital from angels fail miserably.Every angel investor is different, just like every customer is different. But, there are some characteristics that are common to most angel investors. If an entrepreneur would come to me for advice on raising capital and demonstrated the same degree of ignorance about his or her customers as the entrepreneur usually demonstrates about angel investors,I would tell the entrepreneur to find another occupation.Why is it that entrepreneurs make little effort to find out the same type of information about angel investors, yet will work really hard to find out about the characteristics of potential customers? I attribute this to an underlying sense in most entrepreneurs that an angel investor is not a "buyer or customer" but is a "seller or supplier." An erroneous view is that an angel investor is "selling capital" to the entrepreneur and the price to be paid is an equity interest in the entrepreneur's company. Not true. The seller in this case is the company, selling an equity interest to the angel investor who is buying, not selling. If an entrepreneur would only take this view of angel investors, the entrepreneur would do extensive research into the characteristics of the angel investor market. How many angel investors will the entrepreneur have access to, what is the decision making process for an angel investor, who influences the angel investor to make the investment, what is the competition for the angel investor's funds, what will it take to get an angel investor to seriously consider the entrepreneur's opportunity, etc. These are the types of questions the entrepreneur would seek answers to for his or her customers; why not seek this information about angel investors?Finding out the characteristics of the angel investor market is difficult, but not impossible. It is inexcusable for entrepreneurial companies who set out to raise capital from angel investors not to know as much about the angel investor market as they know about their potential customers.